Question

Exercise 5-12 Multiproduct Break-Even Analysis [LO5-9]

Olongapo Sports Corporation distributes two premium golf balls—Flight Dynamic and Sure Shot. Monthly sales and the contribution margin ratios for the two products follow:

		Product
		Flight Dynamic			Sure Shot			Total
Sales	$	720,000		$	280,000		$	1,000,000
CM ratio		61	%		75	%		?

Fixed expenses total $564,000 per month.

Required:

1. Prepare a contribution format income statement for the company as a whole.

2. What is the company's break-even point in dollar sales based on the current sales mix?

3. If sales increase by $54,000 a month, by how much would you expect the monthly net operating income to increase?

Answer 1

1
	Flight Dynamic		Sure Shot		Total company
	Amount	%	Amount	%	Amount	%
Sales	720000	100.00%	280000	100.00%	1000000	100.00%
Variable expenses	280800	39.00%	70000	25.00%	350800	35.08%
Contribution margin	439200	61.00%	210000	75.00%	649200	64.92%
Fixed expenses					564000
Net operating income					85200
2
Fixed expenses	564000
Divide by Total CM ratio	64.92%
Break-even point in dollar sales	868762
3
Sales increase	54000
X Total CM ratio	64.92%
Net operating income increase	35057